Industry leaders have claimed that recent tax rises coupled with the cost of living crisis could cause serious harm to the Welsh hospitality sector, and stunt Wales’s recovery from the pandemic.

Dave Chapman, the Executive Director for Wales for UK Hospitality, told the Welsh Affairs Committee that National Insurances rises, the return of business rates and the recent VAT increase in addition to inflation has caused “very serious” problems for Welsh businesses.

“If you put the combination of costs on top of two years where closures and restrictions have had a destabilising effect on the industry, it really shows the fragility of the industry at the moment,” he said.

“We have a whole cauldron of costs which are having an effect right across the sector. I think it needs some quite bold moves going forward from the industry, the Welsh Government and the UK Government to help us get through this really difficult moment.”

READ MORE: 'Claims that a tourist tax in Wales is anti-English are absurd'

Mr Chapman estimated that the Welsh hospitality industry, which contributed 3.6 billion to the UK economy every year and supported 140,000 jobs prior to the pandemic, was around 20% down on its economic contributions pre-Covid.

Gwyneth Sweatman, Head of Communications for the Federation of Small Businesses Wales, told the committee that the average amount of debt held by small businesses in Wales had risen from 57% to as high as 77% as a result of the pandemic.

“We need the confidence to rebuild. The impact of Covid is such that we are yet to even see the shape of recovery,” she said.

“Businesses are thankful for the support that has been provided by the UK and Welsh Governments. But with the rising cost of living and the changes (to business rates and VAT) that we saw in April, a lot of them are asking ‘what now?’”

Both warned that a rise in VAT back to 20% would hurt the speed of the post-Covid recovery, and lead to higher prices for businesses and consumers.

“A rise of VAT back to 20% means that we will have to put our prices up,” said Mr Chapman, who described the move as “short-sighted.”

“If we had been able to keep it at 12.5%, 70% of our members have said they would use the money they’d save to reinvest in their businesses. That reinvestment is the bedrock of the recovery.”

The committee also heard warnings about the potential tourism tax currently being considered by the Welsh Government.

Suzy Davies, the Chair of Wales Tourism Alliance and former Conservative Senedd Member, claimed that a tourism tax combined with a VAT rise could have a "crippling" effect on the Welsh tourism industry.

“All countries with tourism taxes have low VAT. The prospect of a 20% VAT rise plus a tourism tax, however modest, is not great news for tourism in Great Britain, let alone in Wales,” she said.

“Of the 180 countries in the world where tourism is a major part of the economy, the UK scores bottom of the list in terms of tax efficiency. It’s the highest taxed tourism industry of those 180 countries, so we definitely don’t need more tax.”     

If you value The National's journalism, help grow our team of reporters by becoming a subscriber.